China’s VAT Reform Saves Taxpayers RMB40 Billion

Feb. 7 – China’s value-added tax (VAT) reform has saved taxpayers that participated in the pilot program more than RMB40 billion, according to a conference held by the Ministry of Finance and the State Administration of Taxation on February 1, 2013.

As of February 1, the number of taxpayers included in the scope of the VAT reform has reached over 1 million. The reform, replacing business tax with value-added tax in the transport sector and certain services sectors, was first rolled out in Shanghai on January 1, 2012, and was later expanded to another 11 regions, namely:

Beijing

Tianjin

Jiangsu

Zhejiang

Ningbo

Anhui

Fujian

Xiamen

Hubei

Guangdong

Shenzhen

Currently, VAT is levied on the sales and import of tangible goods, and the provision of processing, repair and replacement service, while business tax is levied on turnover from providing taxable services, transferring intangible assets and selling immovable properties.

The meeting also proposed to improve the pilot policies, further expand the scope of reform areas, as well as duly implement the pilot reform in the transport sector and certain modern service sectors nationwide.

Value-Added Tax ReformVAT reform is a confusing transition for many and introduces a number of additional questions, such as exactly what types of input VAT are now deductible. Confusion about the new laws may also allow opportunistic companies to charge higher prices and blame the increase on the tax reform. To add some clarity to the issue – and VAT in general – this issue of China Briefing takes a look at a number of VAT-related questions.

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